As the CEO of X Tech Ventures, I focus on applying game-changing technologies from multiple, diverse domains to revolutionize healthcare. Previously, I was a Senior Fellow Emeritus and the Corporate Director of Global Healthcare and Life Sciences at Lockheed Martin. I’ve worked on a wide variety of advanced technologies in such areas as autonomous systems, unmanned vehicles, virtual environments, data analytics, artificial intelligence, healthcare, and social networking. I received my doctorate from the University of Notre Dame in Computer Science and Engineering, am a prolific author and inventor, and have served on advisory boards of leading universities and corporations. I tend to look at the world a little differently than others and am an unabashed technology geek. As an advocate for children with special needs, the role I’m most proud of is being the father of a wonderful little boy with autism. Every day is a new adventure.

Six Frightening Facts You Need To Know About Healthcare

Regardless of your political persuasion, there are some facts about the healthcare industry that are not well known to the general public but are key to the realization that the system is broken and that change is desperately needed. Most healthcare organizations are staffed with caring, well-intentioned professionals. However, despite the positive qualities of the individuals involved, the U.S. healthcare system itself is full of preventable harm and excessive waste, which makes the hospital a potentially dangerous place to visit.

The facts below provide a high-level glimpse into an industry that impacts all of us at one time or another.

1. Up to 400,000 people are killed each year due to preventable medical errors. A new study recently released by the Journal of Patient Safety indicates that between 210,000 and 400,000 hospital patients each year suffer some type of preventable harm that contributes to their death. This new study estimates preventable medical errors are the third leading cause of death in America, behind heart disease (1st) and cancer (2nd).

2. $765,000,000,000, or 30% of all U.S. healthcare costs, each year is wasted. A 2011 Institute of Medicine (IOM) study, “The Healthcare Imperative: Lowering Costs and Improving Outcomes,” indicated that of the $2.5 trillion spent on domestic healthcare costs in 2009, $765 billion (or 30%) was attributable to preventable costs. These costs include fraud, unnecessary services, inefficiently delivered services, and excessive administration costs. At the current growth rate, healthcare costs are expected to skyrocket to an unsustainable $4.5 trillion in 2019.

3.33% of hospital patients suffer some form of preventable harm during their hospital stay. A 2012 IOM study, entitled “Best Care at Lower Cost,” reported that 1/3 of hospital patients experienced some form of Hospital Acquired Conditions (HACs), ranging from minor injuries to death. Put that in the context of another consumer product. If your iPhone gave you a harmful shock one out of every three times that you checked your e-mail, would Apple stay in business?

4. 58% of clinicians felt unsafe about speaking up about a problem they observed or were unable to get others to listen. This statistic first appeared in a 2005 report by VitalSmarts and the American Association of Critical-Care Nurses (AACN) called “Silence Kills.” The report also found that “84 percent of doctors observed colleagues who took dangerous shortcuts when caring for patients and 88 percent worked with people who showed poor clinical judgment.” These stats are startling in and of themselves, but the most worrisome item in the report was that, “despite the risks to patients, less than 10 percent of physicians, nurses, and other clinical staff directly confronted their colleagues about their concerns.”

5. Critical care patients each experience nearly 2 medical errors per day. According to a 1995 article from the Journal of Critical Care Medicine, intensive care unit (ICU) patients experienced, on average, 1.7 medical errors per day. The study concluded that the main reason for the errors was significant communication failure between clinicians. While the study is one of the older ones cited in this column, most clinicians believe that this disturbing statistic is still valid today.

6. 92% of U.S. physicians admitted to making some medical decisions based on avoiding lawsuits, as opposed to the best interest of their patients. This startling statistic came from a 2010 Jackson Healthcare study on defensive medicine. The study also found that clinicians from other countries, including New Zealand, Canada, the United Kingdom, and Sweden did not report any ordering of unnecessary tests, treatments, or consultations to avoid lawsuits.

Being able to accurately report preventable errors and waste in the closed culture of the healthcare industry is obviously a difficult challenge. The studies that generated these statistics certainly aren’t without their own controversies. Some may argue that the real numbers are impossible to accurately determine or that the reported data is either over- or under-estimated. Regardless of the methodologies used, when you look at these reports in totality, there is too much information to ignore. To put it bluntly, too many people are suffering preventable harm and the skyrocketing costs are not proportional with the quality of care being provided. Altering this paradigm should be our primary concern.

The only thing more frightening than the list above is imagining what the numbers will be like ten years from now if we don’t fundamentally change the system.

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Yosef – thanks for your comment. You are correct in that it’s a scary situation. Some additional information for you: Physicians who reported practicing defensive medicine, estimated the following: - 35 percent of diagnostic tests were ordered to avoid lawsuits - 29 percent of lab tests were ordered to avoid lawsuits - 19 percent of hospitalizations were ordered to avoid lawsuits - 14 percent of prescriptions were ordered to avoid lawsuits - 8 percent of surgeries were performed to avoid lawsuits

This is a very good article, but I think that it downplays the inefficiencies created by the insurance companies.

First, “avoiding lawsuits” does lead to some unnecessary testing, with 92% of doctors saying that they’d done so, but far more unnecessary testing is performed in order to satisfy insurance company demands – it’s so frequent that it’s become routine for insurance companies to demand a battery of unnecessary tests before they will approve a medically required but expensive procedure, affecting all doctors not just once but routinely. Note that these tests aren’t medically necessary or valuable, as doctors already order the testing required to make their medical decision. The testing demanded by the insurance companies are based purely on a financial estimate that there’s a chance that the tests will turn up a reason not to perform the procedure, including testing with known high error rates where the errors can give the insurance company an excuse to delay or deny a medically required procedure, thus saving the insurance company money. Worse, it’s well documented that insurance companies demand testing and paperwork, and deny procedures to force people to appeal through a complex, expensive process, because they’ve worked out that if they drag the process out patients often either give up or die, both of which cost less than paying for the procedure that the doctors need to perform. Bad for the doctor and the patient, and wasteful, of course.

Second, lawsuits don’t cost as much as people imagine. Because most payments are negotiated down quite a bit from the dramatic numbers that appear in the press, the actual lawsuit payments due to malpractice lawsuits are only 0.1% of medical spending, while insurance companies waste (i.e. their profit and overhead) about 10% of healthcare spending (and often much higher, depending on the insurance company), plus the additional cost incurred by healthcare providers to pay for the staff and do the paperwork to try to get procedures approved and then paid for by the insurance companies.

Given those two, if we’re going to look for ways to save money, I’d suggest that we start by going after the insurance companies. If we ran healthcare as efficiently as most countries (2-3% overhead instead of 10% overhead), we could save more than enough money to provide universal healthcare for all Americans while spending less than we do now. This might be bad for insurance company executives, but great for everyone else.

Laird – Thank you for your thoughtful post. I agree with your sentiments. I could have used a broader term for my sixth fact such as physicians practicing “defensive medicine” which includes many additional factors beyond simply “avoiding lawsuits”, such as the insurance company demands that you addressed. The main point I was trying to make is that people are receiving care that may not necessarily have been provided with their best interests in mind. It’s a broken system that desperately needs to be fixed.

Also, many doctors and diagnostic and surgical centers are linked by ownership interest. Many tests & surgeries etc. are done for profit. Send the patient for tests at a facility that you will profit from and then call it defensive medicine.

I enjoyed the article but I agree with Laird that you left out a big part.

Laird,

I loved your comments. I am a former executive at a “Not-For-Profit” healthcare insurance company that made $4 Billion or more in profit every year I was there and makes more now. This profit was put into reserves and bonus checks before it was given back to policy holders (I never saw them refund any money). I am also a former executive at a national healthcare provider so I can state from experience that insurance companies are designed to make money, period.

Think about it: When was the last time a healthcare insurance company was in financial trouble? How come they can make profits in good and bad economies? How come the US government is forcing everyone to get only healthcare insurance? When was the last time you, or anyone you know, went to their healthcare insurance company for medical treatment? Our government and media do not seem to understand, except for Robert, that Healthcare Insurance companies are NOT PART OF HEALTHCARE. They are part of the Financial sector, like banks!

Insurance companies have more money to spend on Lobbying then banks, Pharma, Med Device and Providers combined. They are also very skilled at cross industry negotiations and getting other players in the industry to side with them because they control the purse strings. This industry has no problem telling a company that their products will not be reimbursed if they do not get on board. Some of these companies are very open about their culture and how it is a “quid-pro-quo” culture.

That said, I think you underestimated the overhead associated in dealing with insurance companies. You left out that providers (hospitals, clinics, et al), are likely spending 25% + of their REVENUE to deal with “Revenue Cycle” (getting paid). This group has to create, submit and follow up on claims to insurance companies. If a provider includes all the billing people, call center people, accounts receivable people, financial councilors, insurance / benefit verification, claim clearing houses, process outsourcing costs, IT software / billing history and people, legal, audit, and denial management costs related to billing insurance companies it can easily be over 30% and some providers will have the costs exceeding 40% of their revenue. Name another industry that has anything close to this complexity for billing their customers? Name another industry where the customer is not the payer? Name another industry where the payer of the service can say NO after the service? What is really disturbing is when a payer denies a claim, the patient is classified, for that interaction, as Uninsured and is now charge a completely different price (often list price) after they have already been told a price and accepted treatment or products based on the price that no longer applies to them. This is because the insurance company’s negotiated price cannot be used since the provider is not getting paid by the insurance company. The Provider is often obligate by their contracts to not give the patient the negotiated price or they can loose the contract.

There is also a lag, often more than 2 months, from the time of patient interaction to the time of claim submission. Medicare gives providers a year to submit a claim. How many times have you received a letter from your insurance company about a visit to a provider from 3 or more months ago? This Eligibility of Benefits (EOB) letter from the insurance company is automated and gets kicked out quickly after they receive the claim. This lag is due to the provider trying to figure out all the complex rules the insurance company has in their agreement, which is often in people’s heads. This delay adds borrowing costs or costs to do fundraising events to help with cash flow. The borrowing and fundraising distracts leaders from daily operations and patient care quality improvement efforts. So, complex insurance payment rules negatively impact costs of healthcare AND business performance AND PATIENT OUTCOMES!!!!!

Based on my experience, the non-value added insurance companies are the only group in healthcare that make out and the Affordable Care Act further enhances insurance companys’ grip on our costs and outcomes (both of these are negative). Providers and patients get squeezed further and insurance companies get the money and ability to say no, after the fact. Name another industry where the payer for a service or product can decide after they have consumed the service or product that they do not have to pay for it – on a regular basis?

If the average US employee looked at what they spend for Medicare, Medicaid, personal insurance and their out of pocket expenses related to healthcare, I think it could exceed 12% of our income on average making it the #2 “Tax” behind federal income tax. I don’t have the answers or all the numbers but I would guess it costs this country $2 Trillion in economic waste (what is 30% of all Provider Revenue + 12% of all US employee income + the cost of 50 different Department of Insurances people working on healthcare insurance +…?).

I am NOT suggesting a single payer system either. On the contrary, I am suggesting a US single PROVIDER system. If we really want to improve healthcare and reduce costs, mandate that we change the VA to a US healthcare provider and that all elected officials HAVE TO GO THERE! Then let everyone with a valid ID go there if the want. Other providers will stay in business because of specifies and geographical accessibility but we would have to use HSA, FSA, private insurance or other private funds to pay for it. The independent providers could cut costs day one. People would get treatment based on what they need instead of what is covered by their insurance companies. Fraud would decrease substantially. Our Vets would be better care because our elected leaders have to go there too so care would improve quickly. All government employees (federal, state and local) would be in the same boat as the rest of the country so no special treatment. Pay for the new US Provider system with an increase in income tax by 5% but eliminate medicare, medicaid and employer health plans. Give the $1 Trillion + CMS budget plus the new 5% income tax to the VA for expansion and improvement. Offer all medical professionals the opportunity to work in the military for 4 years and the government will pay off all student loans (flood the market with talented medical professional with no student debt to help keep costs down and give our military great medical care too).

So, you hit the nail on the head. The problem is not with the Providers or suppliers to the providers, the problem is with the middle market, i.e., healthcare insurance companies. So I suggest we get rid of the problem by cutting it out like a cancer because that is the way it behaves.

Robert — I enjoyed reading your article as it brings up several points that need to be addressed quickly (and should have been addressed earlier), especially with the full implementation of the ACA on the horizon.

#1: The advent of healthcare “reform” with the goal of shifting care to primary care physicians is a noble goal, but not likely in this market. The vast majority of my fellow students are eschewing the primary care specialties because of the still low reimbursement rates given the rising cost of medical school tuition and malpractice insurance. This, coupled with the AMA reporting greater number of physicians are exiting practice will shift primary care of the newly insured to physicians who will cram more patient in to maintain their current income level (given general cost increases with few reimbursement increases). The less time a physician spends with a patient, the more likely a mistake will be made.

#2/#6: Costs will continue to increase because of fault on the physician and patient side. Physicians will continue to drive up costs by ordering unnecessary test to practice defensive medicine. Unfortunately, the ACA will probably exacerbate this because of the lack of malpractice reform (given the assumptions in my first point). Patients continue to drive up costs by demanding tests that are pointless — just because they saw it/heard about it being the latest and greatest — the latest criticism is regarding PSA testing that is in the vast majority of cases pointless, but done nonetheless to appease a patient.

#3/#5: Hospitals are cutting costs due to the cuts in reimbursements promised by the ACA. First thing to go? Staff. While a hospital might be reluctant to cut their physicians, nursing and extenders get cut frequently. As most physicians will admit, nurses, whether RNs or LPNs can make or break a practice/hospital because they are dealing with the patients on a much more frequent basis. So in that case. less staff = less time/patient = more mistakes.

#4: Scary, but very true. Nurses don’t want to speak out against physicians because of the hierarchy — they make an accusation, the physician can basically black list them from getting a job elsewhere — I mean, “if they told on him, they will tell on me too.” Same with physicians confronting others — similar to the “thin blue line” in law enforcement. Your livelihood can depend on referrals from other physicians — those dry up, your income dries up. In the same light, making another physician angry might prevent you from getting privileges at a hospital, thus you have nowhere to send your patients. I doubt this will ever change.

I wholeheartedly agree with your conclusion. However, your article would have been even better had you given the potential “whys” behind the statements to open people’s eyes to what true healthcare reform needs to entail. The ACA IS NOT “healthcare reform” but rather “healthcare access reform.” True healthcare reform would have addressed the points you made clear in your article.

Full disclosure: I hold an MBA in finance and after 8 years in executive management, I went back to medical school and will be graduating in May.

This is an excellent article. Regarding #3, about preventable harm ‘ranging from minor injuries to death’: so true. Stories about deaths tend to get more publicity, but very little is heard about the minor injuries that happen. They happen in doctors’ offices too, not just hospitals. Having experienced several of these so-called ‘minor injuries,’ which actually caused quite a bit of harm, I would venture to say that the injuries are greatly under-reported. Regarding #4, about providers feeling unsafe in speaking up, more surveys need to be done on why this is so. And providers aren’t the only ones who are afraid to speak up. As a patient or patient advocate, I have been forced to speak up more than once because failure to do so would have caused immediate but preventable harm. The doctor responded by bullying and/or dismissing the patient from care in the middle of treatment. That sort of dismissal constitutes abandonment of the patient, and it is illegal. But it happens. As far as insurance companies go, the comments made by Laird Popkin were spot-on.

I agree with what you are saying. Number 3 interests me. The analogy with an I phone is a good one. So, my question is, why don’t people get outraged at these numbers? How many people have to die before Mr and Mrs average american citizen start to realize they need to be really informed, and a little frightened about going to the hospital?

And how come we don’t see medical error, arguably the third leading cause of death in America, included in those “top (ten) causes of death charts” that pop up periodically in medicine and academia (like last year’s anniversary NEJM)? While non-reporting is certainly part of the problem, enough data exists to extrapolate. This Journal of Participatory Medicine article runs it down: http://www.jopm.org/?p=2998